401k Planning: Tips to Keep Your Retirement Plan on Track

So this will obviously affect how much you need to save. Advisors used to say you need to make 85 percent of your working income in retirement. Hobson advised that you need 100 percent. The 85 percent rule was adequate when the housing market was stable and health care costs were manageable. With the housing issues many individuals have, skyrocketing medical costs, and the fact that people are living longer, the 85 percent rule is outdated, she said.

So now the most conservative way to think about it is that you need 100 percent. The best thing that could happen is that your money outlives you. The worst is that you outlive your money.

Q: How early do you have to start saving for retirement? I'm thinking of recent grads, people trying to pay off student loans. Do you pay off your loans, or save for retirement?

Hobson said you should start saving for retirement as soon as possible.

The sooner you start saving, the more time your money will have to grow. You can never make-up for these lost years. She suggested putting away some money for your retirement and also gradually paying off your student loans.

The same goes for your child's education loans. I don't think it is ever a good idea to sacrifice your retirement money to pay off someone else's debt. I know that as parents you may be inclined to help your children out, but remember you have a limited number of years left to earn and save your money, and your children have a lifetime to pay off their loans and save for their own retirement, she said.

Web Extra Tips

Here are some more of Mellody's tips:

• If you cannot contribute the maximum amount, make sure you at least contribute up to the company match level. This is basically free money they are giving you.

• Think of a loan from your 401(k) account as a last resort. The amount you take out will not grow in your account. Also, if you lose your job for any reason, you will have to pay back the loan in a short amount of time, or face penalties and taxes.

• If you are moving to a new job, rollover your 401(k) to your new employer. Keeping your 401(k) at one place will make it easier to manage your money. If you do not like the choices at your new employer, then roll it over to an IRA at one at a brokerage.